Wall Street opens lower as Fed rate hike looms, oil falls

By Yashaswini Swamynathan and Tanya Agrawal

(Reuters) - Wall Street opened lower on Thursday after the U.S. Federal Reserve signaled the possibility of an interest rate hike as early as June and oil prices dropped on fresh concerns of oversupply.

Minutes of the Fed's April meeting, released on Wednesday, caught the market by surprise as they showed that most policymakers thought a June rate hike was appropriate, given continued improvement in the U.S. economy.

"The potential for a June rate hike has put the market on edge a little bit but we expect to see one in July and then another hike later in the year," said Ed Hyland, global investment specialist at JP Morgan Private Bank in Atlanta, Georgia.

Following the release of the minutes, traders were projecting a 34 percent chance of the central bank raising rates in June, up from 15 percent on Tuesday, according to the CME FedWatch tool.

Oil prices dropped more than 2.5 percent, falling for the second straight day on speculation of a rate hike and an increase in U.S. inventories.

Initial jobless claims fell to 278,000, from a 14-month high last week. Economists were expecting a fall to 275,000.

"What we need most...is faster potential growth," Fed Vice Chair Stanley Fischer said in New York.

New York Fed president William Dudley, a voting member, is scheduled to speak at 10:30 a.m. ET.

At 9:40 a.m. ET (1340 GMT) the Dow Jones industrial average was down 55.37 points, or 0.32 percent, at 17,471.25, the S&P 500 was down 6.17 points, or 0.3 percent, at 2,041.46 and the Nasdaq Composite was down 8.80 points, or 0.19 percent, at 4,730.32.

Nine of the 10 major S&P sectors were lower, with the telecom services index's 2 percent fall leading the decliners.

Wal-Mart's shares rose 7.6 percent to $67.99 after the retailer reported first-quarter results that beat analysts' estimates, in contrast with a string of weak results by competitors.

Cisco Systems was up 5.6 percent at $28.21 after the network equipment maker reported better-than-expected results.

Salesforce rose 5.6 percent to $82.18 after the company reported better-than-expected first quarter sales.

Monsanto was up 6.3 percent at $103.24 after disclosing German group Bayer has made an unsolicited takeover proposal.

Declining issues outnumbered advancing ones on the NYSE by 1,992 to 692. On the Nasdaq, 1,196 issues fell and 961 advanced.

The S&P 500 index showed four new 52-week highs and one new low, while the Nasdaq recorded four new highs and 16 new lows.

(Reporting by Yashaswini Swamynathan; Editing by Don Sebastian)